Creative Compensation Programs
In the vast majority of sales compensation programs, the salesperson is offered a base salary plus a commission program. There are exceptions to this, in such industries as Real Estate, where the salesperson works on a straight commission based on a percentage of the sales price for the real estate.
In the research that we have done the average income of the outside salesperson is between $50K – $75K which includes salary plus commissions. In certain industries, such as medical equipment and IT sales, the compensation is higher.
The other factor here is the location of the sales territory. Base salaries are usually higher in large cities where cost of living is more expensive, such as Boston or San Francisco, as compared to cities such as Atlanta or Orlando.
In many companies that SALESTALENT has worked with, the compensation programs are too complex which creates a number of problems. First and foremost, the salesperson needs to clearly be motivated by the commission that they will make on a sale. If this is difficult to understand, a salesperson’s motivation is reduced resulting in lower sales for the company. In most cases, the commission plan should be simple enough to drive the salesperson to make new sales.
Here are four compensation programs that you could implement for your company’s sales team:
Salary + Commission
A salesperson will be paid a base salary and a commission based on achieving a certain quota per month. For example, a person has a sales quota of $100,000 per month, so the commission kicks in on the amount of revenue generated above the $100,000 quota. If the salesperson generates sales of $120,000 in a month, the commission is only paid on that additional $20,000 in sales. The reasoning here is that the salesperson’s salary with benefits and expenses is covered by the $100,000 in sales and the commission is rewarded only for the new sales that are generated above the monthly sales quota.
Salary + Gross Profit Commission
In this program the salesperson is paid a competitive base salary and a commission based on the Gross Profit margin on the products/services that are sold. For example, a salesperson sells a product for $10,000 and the gross profit on that sale is 10% or $1,000. The salesperson is then paid a commission of $1,000. The percentage is determined by the company and their average profit margins.
Quarterly Bonus Program
With this compensation program, a quarterly bonus program is implemented, which adds an additional incentive for the salesperson. If the salesperson reaches their quota for each quarter, they receive a quarterly bonus in addition to their monthly commissions.
New Accounts & Repeat Accounts
This compensation program also has additional benefits for generating new business for the company. Since it is generally more difficult to win new business than service a repeat client, a higher % of commission is paid on a new sale vs. a repeat sale. An example would be to pay a 5% commission on a repeat sale and a 10% commission is paid on a new sale.
Sales Contests are good to increase additional motivation for your sales teams. There are a number of sales contests that you could use…
Highest New Sales Volume
A salesperson wins if they create the highest sales volume in new accounts within a year in their territory. This creates a level playing field because a salesperson may inherit a territory that has had a relatively low sales volume but is rewarded for new sales.
Highest Profit Margin Territory
A salesperson wins if they build a sales territory with the highest gross profit margins within a quarter.
Another technique to use is to have a monthly sales award plaque in your corporate office indicating the top salesperson for each month. This is a good incentive for salespeople to work harder because they want to see their name on the plaque as the #1 Salesperson for the month and the recognition that goes with it.
A method of increasing harmony and a sense of discipline among your sales team is to have regular Monday morning sales meetings to start the week off in a positive manner. If your sales team is regional or even national, your sales meeting can be conducted through ZOOM or other digital means.
As a business owner or sales manager, your sales meetings should always have a positive framework and not a “complaining” session. Sales has its share of disappointments and setbacks so positive sales meetings could add an element of positive “go power.”
Your sales meeting should always have an agenda of the topics that will be discussed at each sales meeting which could include: new sales for the week, new sales tips, sales success stories, discussion of specific sales problems with suggested solutions, and other ideas from your sales team to share with their sales peers.